 What is accounting?

Accounting is an information system and measurement system that identifies ,records and communicates
relevant, reliable and comparable information about an organization’s economic activities .It helps people
make opportunities ,products, investments and social and community responsibilities.

According to American Institution of Certified Public Accountants (AICPA)

“Accounting is an art of recording, classifying for summarizing in a significant manner and in terms of
money transactions and events which are in part at least of financial character and interpreting the result
there of.”

Accounting is an information system that identifies records and communicates the economic events of an
organization to interested users.

 Objectives of Accounting:

1. Primary objective of accounting is to provide useful information activities include identifying,

recording, reporting and analyzing economic events and transactions.

2. They also involve interpreting information systems to provide useful reports that monitor and control
an organization’s activities.

3. Whatever our career path accounting is part of it. We benefit by understanding how accounting
information is prepared and used .To gain understanding .we need to know certain record keeping
skills.Accounitng will provide opportunity to learn these skills.

4. Knowledge of accounting helps us to read and interprets financial data. It will provide great
opportunity for us understand accounting and are able to use information effectively.

 USERS of Accounting:

(Reference book-Accounting Principles Edition, Writer-Kieso, Pg#9)

Internal Users: Who plan, organize and run the business.

1. Marketing Dept.-Marketing, Manager

2. FinancialDept.-Finance Director

3. Management Dept.-Company Officer

4. Production Supervisor

External Users: Individual s and organizations outside company who want financial information about
the company.

 Investors-Decision to buy, hold or sale shares of a company.

 Creditors (Suppliers and Bankers)-To evaluate risks of granting creditors or lending money.
 BRANCHES OF ACCOUNTING:
Accounting has three main forms of branches .viz financial accounting. Cost accounting and managerial
accounting .These forms of accounting have been developed to serve different types of objectives.

BRANCHES OF ACCOUNTING

Financial Accounting Cost Accounting Managerial Accounting

Financial Accounting: It is original forms of accounting .it mainly confined to the preparation of
financial statements for the use of outsiders, like creditors, banks and financial institutions etc.The chief
purpose of financial accounting is to profit or loss made by the business during the year and exhibit
financial position of the business on a particular date.

Cost accounting: Functions of cost accounting is to ascertain the cost of the product and to help the
management in the control of cost.

Managerial accounting: It is an accounting for management i.e.accounitng which provides necessary

information to the management for discharging its function .It is the re-production of financial accounting
is such way as will enable the management to take the decision and to control various business activities.

* Importance of accounting:

1. Analysis purpose /Decision making

2. Record keeping

3. Prevention of fraud and discovery of fraud

4. Getting fund and loans

5. Reputation and credit building.